Tuesday, November 12, 2013

Qualcomm 4Q13 Earnings: Light Guidance, Looking for Exit Point

Qualcomm Inc. reported 4Q13 and yearly earnings on November 6
and held a corresponding conference call at 4:30 E.S.T. Yearly revenue came in at $24.87BB which is
slightly above our estimate of $24.6BB and street consensus of $24.7BB up 30%
versus last year. Quarterly revenue came
in at $6.48BB verse our expectation of $6.21BB and street consensus of $6.34BB
up 33% yoy while Non-GAAP EPS was reported at $1.05 up 18% yoy, slightly lower
than our $1.08 estimate and street consensus of $1.08 as well. If not for legal charges stemming from the
patent case with Parkervision, Non-GAAP EPS would have been $1.15 up 29% yoy. Revenue was driven by strength in Qualcomm’s
licensing and semiconductor business as well as strong 3G/4G device
growth. Dividends were increased for the
11th consecutive year and approximately $3.9B was returned to
stockholders between buybacks and cash dividends during the fourth fiscal
quarter.

Not only did Qualcomm deliver its industry leading third
generation 3G/LTE multi-mode modem, but they were successful in growing their
share of semiconductor content in multiple devices and expanding their
licensing program. Numerous products
based on Qualcomm products were also launched taking advantage of new
capabilities including HD video and LTE carrier aggregation. The growth of tablets has also contributed to
Qualcomm’s success. Popular devices
including the Google Nexus 7, Kindle HDX, LG G Pad, and the Sony Xperia Z all
contain Qualcomm processors. In addition
to these new devices, new plans forcing people to upgrade to 4G LTE have
sparked growth in Qualcomm. With a
monopoly in processors across the largest manufacturers in the phone and tablet
market, Qualcomm is poised to continue with great success.

Looking ahead a plethora of new innovations combined with an
emerging smartphone/tablet market and focus on cost cutting poise Qualcomm for
another successful year. Qualcomm
expects solid growth but at a lower rate based on the exceptionally strong
numbers in 2013. Approximated 225M
smartphones were shipped in Q2 of 2013 representing a 47% yoy increase. It is expected that 1.8B smartphones will be
shipped in 2017, representing a substantial growth in the smartphone market. Another catalyst is the expansion of
LTE. Approximately 100M new LTE
connections are expected by the end of calendar year 2013. Expansion of LTE into China is a huge
opportunity that Qualcomm plans to take advantage of in 2014. Qualcomm anticipates strong growth in low and
mid-tiers driven by the launch of LTE in China.
Growth is seen in China across all smartphone tiers, leading to
Qualcomm’s Emerging Accounts to exceed $1B in revenue in 2013. To complement the expansion into flagship
smartphones and tablets, Qualcomm is slowing the growth rate of their
spending. They have projects underway to
improve product costs within QCT including driving supply-chain efficiencies
and designing cost optimized solutions.

While we applaud a solid FY13 and quarter end excluding the Parkervision
patent case we are displeased with the light guidance provided juxtaposed
against a slight decrease in average selling prices. Historically the stock has
sold at a 5 year average of 24.9x ttm earnings. Currently the stock is valued
13.3x our FY14 EPS of $5.18 well ahead street consensus at $4.93. While we
remain constructive on the name we are looking for an exit point upon the sale
of the North and Latin American operations of Omnitracs scheduled to close in
1Q14.